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IT-Specific Announcements in the Federal Budget

IT export houses will now be able to open foreign currency accounts to bring back export earnings and make payments for operations abroad.
By TR Pakistan

“In the future, the gap between industrialized and non-industrial economies will become less pronounced than the one between Information Technology-enabled economies and the rest,” said Finance Minister Ishaq Dar in his speech on the Federal Budget.

The Federal Budget for 2017-2018 was announced during the National Assembly session on May 26th.

According to the Finance Minister, the government has recognized the importance of IT in every sector of human activity such as e-commerce, banking, learning, trading, and entertainment, and it has taken measures in the budget to promote IT in these various sectors. Below, we outline IT-related measures announced by the Finance Minister.

Read more: Pakistan Partners up with Alibaba for SMEs

Information Technology in Pakistan

The government has announced to set up an IT software park in Islamabad with the help of the Korean Government at a cost of PKR 6 billion. The financial arrangements have already been concluded and construction will begin shortly.

Start-up software houses shall be exempted from Income Tax for first three years and exports of IT services from Islamabad and other federal territories, like Gilgit-Baltistan and Federally Administered Tribal Areas (FATA), shall be exempted from Sales Tax.

An important announcement concerning IT export houses is that they will now be allowed to open Foreign Exchange Accounts in Pakistan on the condition that deposits in these accounts shall only be through remittances from abroad. Alongside depositing their export earnings, IT export houses shall also be able to use these accounts for making business-related payments outside Pakistan.

Mobile phones are an important element in providing IT connectivity but the industry is heavily taxed in Pakistan. The Federal Budget has reduced the withholding tax on mobile phone calls from 14 percent to 12.5 percent and Federal Excise Duty from 18.5 percent to 17 percent.

Ishaq Dar said that he hoped that the provincial governments will also follow suit and reduce the rate of sales tax on mobile telephony.

The federal government is also encouraging the use of smartphones by reducing custom duty from PKR 1,000 to 650. The import duty on mobile telecom products is also being decreased.

By introducing a significant number of IT measures, the government is also hoping pave the path towards e-governance in the future.

Financial Inclusion

In order to strengthen the financial sector, the government is implementing the National Financial Inclusion Strategy which aims to enhance formal financial access to 50 percent of the adult population by 2020.

Under this strategy, a PKR 8 billion fund will be created by the State Bank of Pakistan (SBP)  to provide loans to low-income segments through microfinance banks.

Most importantly, the government is establishing an advanced e-gateway system in order to facilitate more transactions through mobile banking.  The system will be set up by SBP at a cost of PKR 200 million.

Information and communications technology experts see the establishment of the e-gateway system as a move towards replacing the existing manual trade payment system relying on opening Letters of Credit.

This international electronic payment gateway will also provide a mechanism for secure and reliable authentication of transactions that will boost consumer confidence and improve the prospects of e-commerce market in Pakistan.

The government has also announced exemption from withholding tax on withdrawal of cash from branchless banking.

Currently, only 25 percent of the population has access to formal banking channels. Greater financial inclusion will also allow the government to better document the economy.

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